A positive feedback loop where climate warming enhances eutrophication and its manifestations (e.g., cyanobacterial blooms) has been recently highlighted, but its consequences for biodiversity and ecosystem functioning are not fully understood. We conducted a highly replicated indoor experiment with a species-rich subtropical freshwater phytoplankton community. The experiment tested the effects of three constant temperature scenarios (17, 20, and 23 °C) under high-nutrient supply conditions on community composition and proxies of ecosystem functioning, namely resource use efficiency (RUE) and CO2 fluxes. After 32 days, warming reduced species richness and promoted different community trajectories leading to a dominance by green algae in the intermediate temperature and by cyanobacteria in the highest temperature treatments. Warming promoted primary production, with a 10-fold increase in the mean biomass of green algae and cyanobacteria. The maximum RUE occurred under the warmest treatment. All treatments showed net CO2 influx, but the magnitude of influx decreased with warming. We experimentally demonstrated direct effects of warming on phytoplankton species sorting, with negative effects on diversity and direct positive effects on cyanobacteria, which could lead to potential changes in ecosystem functioning. Our results suggest potential positive feedback between the phytoplankton blooms and warming, via lower net CO2 sequestration in cyanobacteria-dominated, warmer systems, and add empirical evidence to the need for decreasing the likelihood of cyanobacterial dominance.